Governors Island Deal on Ropes After Feds Withdraw $1 Offer

The buy-of-the-century deal, brokered by Senator Daniel Patrick Moynihan and President Clinton to allow the city to take over the historic island in New York Harbor for a buck, may be dead, a top aide to Senator Moynihan told The Observer .

Tony Bullock, Mr. Moynihan’s chief of staff, said officials from the General Services Administration recently informed him they were legally forbidden from selling the island for next to nothing as long as the city was thinking about leasing portions of it to private businesses.

City officials, he said, will have to negotiate with the G.S.A., the Federal agency charged with disposing of the island, if they want to get the former Coast Guard base for less than the $500 million price tag at which it has been valued.

Stunned city and state officials are balking at even that, throwing into uncertainty fledgling plans to turn the 172-acre island into a commercial city outpost.

Mayor Rudolph Giuliani’s aides are in talks with Tivoli Gardens, the Copenhagen-based amusement park company, and a number of real estate firms about turning it into a tourist destination that throws off enough revenue to pay for itself. But the Mayor has been counting on getting the island for next to nothing.

“The reality of that is virtually nil,” given the G.S.A.’s position, Mr. Bullock told The Observer .

A spokesman for the G.S.A.’s New York office declined to comment. Beverly Barnes, a White House spokesman, also would not comment on the $1-for-the-island deal. But she said Congress passed the balanced budget act in 1997, ordering the sale of Governors Island for “full market value” in 2002. Ms. Barnes said the Congressional Budget Office had estimated the value of the onetime Revolutionary War outpost at $500 million.

Mr. Bullock said there was a chance that the G.S.A. would agree to sell the island for a lower price if the city and state made an acceptable offer for it, and he urged local officials to do so now.

But a Giuliani administration official who spoke on condition of anonymity said there was no way the city would agree to pay millions of dollars for Governors Island. “That’s news to me,” the official said. “That’s not what we’re going to do. We’re not going to pay any money. Our lawyers think we can get it for a $1 or no value.”

Maura Gallucci, spokesman for Gov. George Pataki’s Empire State Development Corporation, sounded similarly defiant. “This is not a typical base closure since Congress has put a $500 million price tag on it,” she said. “But the state and the city and the Federal Government will continue to work together to find an appropriate solution.”

Aides to both Mayor Giuliani and Governor Pataki said they were startled to hear the Clinton-Moynihan deal might be dead. Over the years, they have argued there has to be commercial development on Governors Island to offset the former Coast Guard base’s formidable maintenance bill, estimated to be $40 million a year. In fact, they are so worried about Governors Island becoming a financial black hole that they are counting on the Federal Government to help shoulder some of this fiscal burden. The biggest costs are expected to be preserving the island’s historic forts and paying for regular ferry service to and from Manhattan.

Charles Gargano, Governor Pataki’s chief economic adviser, has told The Observer that the Governor still hasn’t determined whether the state would want to be saddled with the island at all, even for $1.

Mr. Moynihan has been trying to push the city and state along. Fearful that Governors Island’s historic forts and Colonial-era residences won’t survive many more of New York Harbor’s howling winters, he has been participating in a task force Mr. Giuliani created in January to come up with a plan for the former Coast Guard base.

But, according to Mr. Bullock, the General Services Administration has taken the position that the $1-for-the-island deal would be legally permissible only if the city and state wanted to reserve all 172 acres for “public benefit programs,” such as public health facilities, housing for the homeless and other mundane uses likely to drive up the cost of operating the island.

In an interview with The Observer , Mr. Moynihan said he still was hopeful his deal with the President could be consummated. But he acknowledged there were a host of legal questions that had to be settled before that could happen.

The deal was reached with Mr. Clinton in 1995 when the two men shared a helicopter ride from John F. Kennedy International Airport to Manhattan. Soaring over Governors Island, Mr. Moynihan said, he reminded Mr. Clinton that the Coast Guard base was being closed and asked the President if he would to hand it over to the city and state for $1.

“He said, ‘Fine, but it should be used for public purposes.’ I said, ‘ Mostly public purposes, Mr. President,'” Mr. Moynihan recalled. “And he said, ‘Fine.’ The next thing you know we were landing in Manhattan. I wrote the Governor and the Mayor at the time to report this. But I never got anything in writing from the President.”

Mr. Moynihan said the Giuliani and Pataki administrations and the New York Congressional delegation needed to confront President Clinton about the deal and see if it was still on before the President leaves office in 2001. “And,” Mr. Moynihan added, “I’d get some lawyers.”

But that seems unlikely. Much to Mr. Moynihan’s understandable chagrin, Mr. Pataki and Mr. Giuliani have been unable to sit down together and come up with a Governors Island plan that might satisfy the President. Now that their behind-the-scenes scuffling has erupted into all-out political combat, Mr. Pataki is unofficially boycotting the Mayor’s Governors Island task force and the chances of the Republicans joining forces have never looked more dim.

If that wasn’t bad enough, Mr. Moynihan recently had to fend off an attempt by a group of Midwestern senators to hasten the sale of Governors Island to subsidize $500 million worth of Federal crop insurance.

The Pataki and Giuliani administrations have shrugged off such threats, insisting nobody will ever pay that kind of money to assume responsibility for Governors Island and its multimillion-dollar annual maintenance costs.

But Mr. Bullock said there still could be a bidding war for the former base, which is only a short ferry ride from Wall Street and offers magnificent views of New York Harbor’s many wonders, including the Statue of Liberty, Ellis Island and the canyons of lower Manhattan. For one thing, Mr. Bullock noted, the island is currently zoned for 75,000 housing units. “Who knows who will come here from Copenhagen or Tokyo or a big pile of money at the auction?” Mr. Bullock said. “We don’t know what could happen. Thus far, the impression given by people in New York is that no one will go near this thing. But who knows? Maybe, for all we know, someone will come in and surprise everybody.”

The Giuliani administration official scoffed at Mr. Bullock’s fears. “We do properties all the time that we say we are going to sell in a year or two, and the developers come out in droves,” he said. “There’s nobody coming out in droves here.”

Still, Mr. Bullock said, the city and state would be wise to take advantage of their legal right to make a first offer to the G.S.A. for the property. “I think one of the concerns that the [New York City] Congressional delegation has is that we have to avoid the Clint Eastwood make-my-day approach to the auction,” he said.

Representative Jerrold Nadler, another member of the Mayor’s Governors Island task force, agreed that it no longer made sense for the city and state to count on Mr. Moynihan’s 1995 deal. But he said the G.S.A. might agree to a reasonable price if the city came up with a Governors Island plan that was largely devoted to public uses, and the state signed on. “It’s clearly going to be a lot of public use,” Mr. Nadler said. “To the extent that it is not entirely public use, then they may want us to pay some money for it.”

Mr. Nadler said he was hopeful the task force could come up with such a good plan that Mr. Giuliani and Mr. Pataki might be willing to join hands and appeal to the G.S.A. to lower the price of Governors Island. “Unfortunately, right now, you’ve got a feud between the Governor and the Mayor,” he said. “Hopefully that won’t last forever and even if it does, this will be exempted. The task force will have a recommendation [for Governors Island]. The Governor’s people will look at the recommendation and I hope they will judge it on the merits as they see it and not simply say, ‘This is tainted because Rudy had something to do with it.’ You know, this is important.”

Representative Carolyn Maloney, another member of the mayoral task force, was confident a bill could pass, making it easier for the G.S.A. to sell Governors Island cheaply now that Mr. Giuliani has dropped his push to turn the historic military base into a gambling resort. “Any time you try to do any kind of legislation in Congress, it’s difficult,” she said in a statement. “But if we have a Republican Mayor, a Republican Governor and two Democratic Senators, a bipartisan House delegation and an administration that wants to help, then we have a good chance of getting it done. It’s going to be hard, complicated and everything, but before we had this panel, before the Mayor invited everyone in a room to work together, we had no hope.”

But it would surely be an uphill battle for such a bill as long as Mr. Giuliani and Mr. Pataki are at odds, and Congress has been hoping to wring $500 million from the island’s sale. “It would be a precedent-setting resolution,” Mr. Bullock lamented, “and not one that had much chance of success.”